Tax Increases vs. Spending Realities

With the fiscal cliff standoff having reached its disappointing conclusion, it is time for conservatives to once again make their case to the American people that spending reductions are key to a better America. Unfortunately, The New York Times' editorial page has already jumped to the defense of just the opposite -- tax increases that will be used for more "investment" by the federal government. According to the Times, spending really isn't causing current deficits. The problem is a lack of tax revenue:

The main problem is that the current tax code is incapable of raising the revenue needed to pay for the goods and services of government. Over the last four years, federal revenue as a share of the economy has fallen to its lowest level in nearly 60 years, a result of the recession, the weak recovery and a decade's worth of serial tax cuts. Even with deep spending cuts, the chronic revenue shortfall is expected to continue, swelling the federal debt - unless taxes go up. To stabilize the debt over the next 10 years while financing more investment would require at least $1.5 trillion to $2 trillion in new revenue, above what could be raised by letting the top income tax rate revert to its pre-Bush-era level of 39.6 percent.

To a degree, the editorial is correct. As Times columnist Paul Krugman correctly pointed out, much of the current deficit is due to the drop in tax revenue because of the recession. However, this is where the editorial and Krugman end their visit to reality. Consider:

As was pointed out in the American Thinkernearly a year ago, interest rate payments and health care costs are continuing to increase, and look to begin growing precipitously in the next decade. Medicare and interest payments alone are about one-quarter of the federal budget this year, and this is before the Baby Boomers fully retire and when interest rates are at record lows. Throw in Social Security -- about 20% of the federal budget and growing -- and it's easy to see that Krugman and the Times have abandoned reality.

Second, basic math shows recession-related reduced tax revenue was responsible for far less than half of the 2011 deficit. From Hot Air:

A. According to [the Tax Policy Center], last year's revenues were 15.4% of GDP. If revenues hit 20% of GDP in 2011 (a percentage surpassed only three times since 1934, which is as far back as the TPC chart goes), this means revenues would be up by 30%.